Bakkt, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. Bakkt operates a digital asset marketplace, loyalty redemption platform, and alternative payments business. The company reported approximately 0.7 million transacting accounts during the quarter. Comparisons with Q1 2021 require caution: 2022 is the post-business-combination “Successor” period, while 2021 is the “Predecessor” period, and the accounting basis and corporate structure differ.
Financial performance and liquidity
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Revenue | $12.5 million | $8.1 million |
| Operating loss | $48.5 million | $28.4 million |
| Net loss | $43.3 million | $28.8 million |
| Adjusted EBITDA (non-GAAP) | $(28.9) million | $(16.9) million |
| Cash used in operating activities | $33.2 million | $1.0 million |
| Cash used in investing activities | $3.1 million | $4.1 million |
Revenue increased 53.9%, primarily from higher loyalty-redemption transaction activity and additional services for an existing loyalty customer. Revenue consisted of $6.5 million in transaction revenue and $6.0 million in subscription and service revenue; loyalty redemption generated $12.7 million, while digital asset marketplace revenue was $0.1 million and alternative payments revenue was negative $0.3 million.
Operating expenses rose 67% to $61.0 million. Compensation and benefits increased to $35.1 million, including substantial non-cash share-based compensation and higher staffing costs. Professional services, technology costs, SG&A, and depreciation and amortization also increased. Acquisition-related expenses fell to $0.5 million from $7.8 million in the prior period. A $2.4 million non-cash gain from revaluing public warrants partially reduced the loss.
Operating and net losses were respectively about 387% and 346% of revenue; the filing does not present a gross margin measure. Net loss attributable to Bakkt Holdings, Inc. was $7.1 million; reported loss per Class A share was $0.12 basic and $0.14 diluted. Adjusted EBITDA worsened by $12.0 million year over year.
At March 31, 2022, cash and cash equivalents were $355.2 million, restricted cash was $16.5 million, and total current assets and current liabilities were $428.0 million and $72.9 million. Restricted cash supports regulatory capital requirements. Total liabilities were $118.7 million, including a $15.0 million warrant liability; the filing does not report conventional funded debt. Cash, cash equivalents, restricted cash, and customer funds decreased $36.1 million during the quarter. The company has not achieved positive operating cash flow.
Changes, outlook, risks, and unusual items
- Management expects compensation and SG&A to rise in absolute dollars as it hires, markets, and supports public-company requirements, but expects compensation and SG&A to decline as a percentage of revenue over time. It also anticipates continued hiring and increased marketing and promotional activity. No quantified revenue, earnings, or cash-flow guidance is provided.
- Management plans to use available cash for sales and marketing, product development, technology infrastructure, and operational support. It may pursue acquisitions or investments, but reported no current agreements or commitments to do so.
- The company had a $35 million purchasing-card facility arranged in April 2022, payable monthly without interest if paid when due. It requires a $7 million minimum-liquidity collateral account. The prior facility was extended to August 12, 2022. A separate four-year cloud-computing arrangement carries $20 million of minimum commitments.
- Following the April 16, 2022 lock-up expiry, holders exchanged 17.5 million paired interests for Class A shares; the company elected not to settle these exchanges in cash. The Tax Receivable Agreement requires payment to exchanging holders of 85% of certain realized tax benefits; no exchanges had occurred by March 31, 2022.
- Bakkt was evaluating SEC Staff Accounting Bulletin 121, requiring recognition of an asset and corresponding liability for cryptoassets safeguarded for platform users. It expected adoption by the quarter ending June 30, 2022, retrospectively from January 1, 2022; the financial impact was not quantified.
- A putative securities class action filed April 21, 2022 alleges misleading disclosures by VIH and certain former officers and directors in connection with the business combination. Bakkt intends to defend the case; the filing does not quantify potential exposure.
- Key risks include dependence on partner and user growth, digital-asset market changes, evolving regulation, competition, product execution, cybersecurity and data protection, and the ability to manage growth and costs. Management said operations continued to recover from COVID-19 impacts; it reported no material change to previously disclosed risk factors.
Important facts for investors to verify
- Whether loyalty-redemption growth can continue and diversify revenue, given that it represented substantially all revenue.
- Whether expense growth and operating cash burn moderate; reconcile management’s stated expectations with the increase in Adjusted EBITDA losses.
- The effect of SAB 121 adoption on reported assets, liabilities, and balance-sheet volatility.
- Liquidity and covenant headroom, including restricted regulatory cash, the purchasing-card facilities, and the pace of cash consumption.
- The potential dilution and tax-payment consequences of paired-interest exchanges and the Tax Receivable Agreement, as well as the outcome and potential cost of the securities litigation.
- Use the Successor/Predecessor distinction when interpreting year-over-year changes; the comparative periods are not fully comparable.